Monetary and Fiscal Policy When People Have Finite Lives

Roger Farmer and Pawel Zabczyk

No 25445, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper incorporates realistic demographic structure into macroeconomic policy analysis by examining an overlapping generations model calibrated to match U.S. income data over the lifecycle. We provide explicit conditions for the existence of multiple dynamically efficient steady-state equilibria with positive debt levels for empirically relevant calibrations. Unlike in representative agent frameworks, indeterminacy can arise in our model under passive monetary and active fiscal policy. More surprisingly, one degree of indeterminacy remains even when both policies are active. Following fundamental shocks, the model generates highly persistent swings in real interest rates consistent with evidence on long-horizon trends. Our tractable approach bridges theoretical models relying on infinite horizons and homogeneous agents with finite-lived heterogeneous consumers that populate actual economies.

JEL-codes: E31 E58 H62 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.nber.org/papers/w25445.pdf (application/pdf)

Related works:
Working Paper: Monetary and Fiscal Policy when People have Finite Lives (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:25445

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25445

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().